EU Commission action plan on sustainable finance

In March 2018, the European Commission adopted an action plan on sustainable finance as part of a strategy to integrate environmental, social and governance considerations into its financial policy framework and mobilise finance for sustainable growth. In May 2018, the Commission released the first legislative package under the action plan. The four proposals included in the package are: (1) a unified EU classification system (‘taxonomy’), (2) investors’ duties and disclosures, (3) low-carbon benchmarks, (4) better advice to clients on sustainability. In July 2018, the Commission also established a technical expert group on sustainable finance (TEG) to inform work on the action plan.

In June 2019, the TEG published recommendations on sustainable finance. These include:

For an open letter calling on the EU Commission to include human rights expertise in the technical expert group on sustainable finance, to which the Business & Human Rights Resource Centre was also a signatory, see here.

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Article
26 August 2019

EU sustainable finance 'taxonomy' proposal provides insufficient social & human rights safeguards, argue NGO experts

Author: Eleni Choidas, ShareAction, Lis Cunha, ActionAid International & Rachel Owens, Global Witness, via Euractiv

'Human rights and green finance: friends or foes?', 22 August 2019

...EU Member States in the Council are currently discussing the Taxonomy proposal... Once finalised, it is expected that... this classification system... will help companies raise capital in environmentally friendly operations, as well as give investors a common framework that will prevent greenwashing.

Yet, ...not enough attention is being paid towards guaranteeing that the Taxonomy will not unwittingly promote harm to people as it seeks to power environmental progress...

Many vulnerable communities in the South have already lost their land and seen their food security undermined in the expanding drive for biofuel production. Cases of displacement, harms to indigenous peoples’ rights, threats and killings linked to wind, hydropower and solar projects around the world have also been reported...

It is crucial that strong social safeguards are introduced as a key compliance requirement in the Taxonomy...

The co-legislators must... ensure that complying with the Taxonomy will require due diligence processes which... are based on engagement with stakeholders impacted...

Secondly..., policy-makers must ensure the inclusion of human rights experts in the forthcoming Permanent Platform on Sustainable Finance, tasked with the continued oversight and review of these safeguards.

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Article
24 June 2019

Commission publishes guidelines to improve how firms report climate-related information and welcomes three new important reports on climate finance by leading experts

Author: European Commission

18 June 2019

The European Commission has today published new guidelines on corporate climate-related information reporting, as part of its Sustainable Finance Action Plan. These guidelines will provide companies with practical recommendations on how to better report the impact that their activities are having on the climate as well as the impact of climate change on their business...

They will provide guidance to around 6,000 EU-listed companies, banks and insurance companies that have to disclose non-financial information under the Non-Financial Reporting Directive...

Also today, the Commission welcomes three important expert reports published by the TEG on sustainable finance:

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Article
19 June 2019

EU Commission's Technical Expert Group recommends excluding coal & nuclear power from sustainable investments

Author: Sven Giegold

"Strong signal for sustainable finance: EU Commission expert group excludes coal and nuclear power from green financial products", 18 June 2019

[T]he EU Commission’s Technical Expert Group published recommendations on sustainable finance. Last spring, the EU Commission had presented various legislative proposals as part of its action plan for sustainable finance. The expert group’s recommendations relate to the classification of sustainable investments (taxonomy), a methodology for sustainable benchmark indices, measures for climate-related disclosure obligations and the design of an EU standard for green bonds.

Regarding classification, the experts recommend excluding investments in coal and nuclear power from sustainable investments. This also applies to investments meant to increase efficiency of existing fossil infrastructure. In contrast, investments that make a positive contribution to climate protection and do not undermine other environmental goals such as the protection of ecosystems should be considered sustainable. The European Parliament has already established its position for a framework law for classification, while negotiations in the Council of Ministers are still ongoing...

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Article
18 June 2019

Expert group releases climate taxonomy proposal

Author: Susanna Rust, Investment & Pensions Europe

The European Commission’s expert group on sustainable finance today published its final recommendations for a “taxonomy” of environmentally sustainable activities, which is at the heart of the EU executive’s plan to harness the finance sector for its fight against climate change...

The main report sets out technical screening criteria for 67 economic activities that can make a substantial contribution to climate change mitigation...

The TEG also published a report on its recommendations for an EU green bond standard and an “interim” report on EU climate benchmarks...

Publication of the TEG’s reports comes as political agreement on a taxonomy regulation by the EU Council and the European Parliament remains outstanding...

With its mandate having been extended until the end of this year, the TEG will launch a call for feedback by early July on those technical screening criteria that have not yet been subject to public consultation.

It will also refine and further develop “some incomplete aspects” of the proposed criteria, and develop further guidance on implementation and use of the taxonomy.

The TEG’s recommendations are designed to inform a proposed delegated act to implement the taxonomy. Under the draft regulation currently under discussion, this would be developed by the Commission and subject to full public consultation as required under standard procedures.

The Commission will be hosting a “stakeholder dialogue” on climate-related reporting and the TEG reports on Monday.

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Article
18 June 2019

Stakeholder dialogue: progress and outcomes of the technical expert group’s work on sustainable finance

Author: European Commission

On 18 June 2019, the technical expert group (TEG) on sustainable finance published three new reports:

To accompany these reports and provide a venue for an open exchange with stakeholders, the Commission is organising a Stakeholder dialogue on sustainable finance on 24 June 2019.

In addition to the reports of the TEG, during the event the Commission will present the new guidelines for companies on how to report climate-related information. These guidelines are built on the proposals made by the TEG in January 2019.

The event will also feature a session on the future of sustainable finance, where the audience will be invited to present their ideas.

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Article
23 April 2019

Investors issue strong call to action as EU Parliament votes in sustainable investment disclosure rules

Author: Global Witness

"Investors issue strong call to action - as European Parliament votes in new rules to ensure finance doesn't cause human rights abuses and environmental destruction", 18 April 2019

This week has seen historic moves from across both politics and industry, which could transform the financial sector in the European Union.

The European Parliament has made a major step towards a more ethical financial sector, by unanimously voting for new rules that mean investors will have to put proper measures in place ensuring their activities do not cause human rights abuses or environmental destruction.

This major move was also backed by big players in the investment industry itself – with the likes of Aviva, Hermes, Sycomore and Robeco issuing a major call on investors to set up and carry out robust due diligence processes to manage risks to people and the environment. They also urgently called on governments to support investor due diligence through better regulation of financial systems...

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Article
28 March 2019

EU: NGOs call on MEPs to strengthen human rights dimension of sustainable finance taxonomy in crucial vote

Author: Lis Cunha, ActionAid, Rachel Owens, Global Witness & others

'MEPs must shun calls to weaken curbs on environmental and human rights abuses', 27 March 2019

This op-ed is supported by Oxfam, Global Witness, ShareAction, Action Aid and BHRRC.

...On Thursday, this European Parliament has its chance to define a framework for “sustainable investment”, during the vote on a Regulation for a framework to facilitate sustainable investment or the so-called Taxonomy Regulation.

This will go one of two ways. Either MEPs will vote for amendments which set out firmer rules on what a sustainable economic activity for investment purposes is...

Or MEPs will vote to water down these legislative proposals on environmental, social and governance risks (or ESG)... and choose to focus on only the environmental side, disregarding the social and governance risks.

...Therefore, it is crucial that MEPs vote for those amendments tabled in Plenary, which ensure that Social and Governance Risks – as well as Environmental Risks – are properly covered in sustainable activities and investments. Without these properly accounted for, they risk giving a green stamp to investments that are environmentally friendly on the face of it without ensuring they have strong mechanisms in place to avoid land grabs and attacks on indigenous people who provide effective environmental safeguards...

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Article
13 March 2019

EU: MEPs vote to reject amendments to 'green taxonomy' of Sustainable Finance Action Plan incl. integration of human rights into methodology

Author: Sophie Robinson-Tillett, Responsible Investor

[subscription only]

"EU green taxonomy vote branded ‘disastrous’ as MEPs quash key amendments", 12 March 2019

A vote on the ‘green taxonomy’ last night at the European Parliament has been branded “a circus”, with an [...] outcome which some say “favours financial lobbyists and greenwashing”.

[P]rogressive amendments that would have raised the ambitions of the taxonomy were rejected... 

[T]he result was an unexpected blow for progressive parties and civil society...

Plans to commit the Commission to develop social and governance objectives were rejected, in favour of [...] looser commitments; plans for a ‘brown’ taxonomy for investments “that fund one or several economic activities that cause significant harm to the environment” were also dismissed, along with proposals for a label for financial products and corporate bonds that are found to be aligned with such criteria. 

The integration of human rights also failed to make the cut... ShareAction[’s] European Policy Manager [...] said she urged MEPs to reconsider this point, adding that “minimum social safeguards need to be considered at EU-level to ensure companies are encouraged to mitigate the human rights risks of their operations, and that investors apply the right kind of pressure to ensure this be the case if they want the activities they invest in to be classified as sustainable by the EU”...

It is still possible to change the final agreement by Parliament, but it is much trickier...

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Article
7 March 2019

EU sets out plan for investor sustainability disclosure rules

Author: Susanna Rust, Investment & Pensions Europe

The European Parliament and EU member states have reached a political agreement on the so-called disclosure regulation that forms part of the European Commission’s sustainable finance plan, it was announced today.

According to a statement from the EU Council, the EU member states body, the text that was agreed today requires institutional investors to disclose:

  • the procedures they have in place to integrate environmental and social risks into their investment and advisory processes;
  • the extent to which those risks might have an impact on the profitability of the investment; and
  • where they claim to be pursuing an environmentally friendly strategy, information on how this strategy is implemented and the sustainability or climate impact of their products and portfolios.

EU ambassadors must now endorse the political agreement, and after that the European Parliament and Council will be called on to adopt the proposed regulation at the first reading...

The disclosures regulation is the second of the Commission’s sustainable finance legislative proposals for which there is now political agreement. Last month agreement was reached on a low-carbon benchmarks regulation proposal...

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Article
7 March 2019

Global Witness: EU Parliament & Council reach political agreement on new set of rules for investor due diligence

Author: Global Witness

'Global Witness celebrates significant agreement and shift in mind-set from the EU on investor due diligence', 7 March 2019

The European Parliament and Council have today reached a provisional political agreement on a new set of rules requiring European investors such as banks and insurers, to carry out due diligence.

This means investors will need to disclose the steps they have taken to address the adverse impact of their investment decisions on people and planet.

The agreement, which was reached in the early hours of this morning, also fundamentally redefines the risks that investors must consider when decision making – moving away from pure financial risk to their profits, and towards risks to human rights and our global environment. [...]

The rules still however, the NGO said, have weaknesses. They will not automatically apply to all investors as pension funds are out of scope leaving a large part of the market exempt from due diligence.

On top of this, investors will initially only be subject to a ‘comply or explain’ compliance mechanism, although it will become mandatory for large investors after 18 months. This means that investors themselves will need to determine whether they consider the adverse impacts of the investment decisions or not. [...]

The new rules are a cornerstone of the EU’s Action Plan on Financing Sustainable Growth which was launched in March last year. The EU is currently leading the way on ensuring finance is re-orientated towards sustainable economic activity.

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